May Insider Report: Buying Points to Coal Opportunity

The month of May was extremely interesting for both the stock market in general, and for insider transactions more specifically.

The market stormed higher during the first three weeks of the month, then gave back about a third of those gains in just the final few days. Meanwhile, Sinletter.com says insider sales-to-purchases began May with a totally lopsided 91.2 ratio[1], meaning insiders were selling 91 times as many shares as they were buying. But by the last week of May, that ratio had fallen to 12.79.

As the market vaulted higher, many insiders thought it prudent to take profits at new highs, perhaps on anticipation of a possible market correction. With the ratio falling sevenfold over the course of the month, May turned into a mixed bag of insider selling and buying.

Today, I would like to highlight two examples of significant insider sales and one notable company with an enormous amount of insider buying.

Sellers out in Force

Electronic Arts (EA[2]) is our first company with significant insider sales this past month, with eight different company insiders selling more than $16 million worth of shares between $22.03 and $23.30 per share. As the accompanying table shows, most of these sales were direct and on the open market.

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Electronic Arts — a Redwood City, Calif., designer and marketer of computer software and video games — has climbed from $14 to $23 in only four months, and is nearing strong resistance levels from late 2011, when it put in a double top at $25. One can hardly blame the company insiders for taking some profits at this juncture.

The second stock with heavy insider selling is Whole Foods Market (WFM[4]), the Austin, Texas-based operator of a chain of natural- and organic-food supermarkets. WFM is another stock that has done quite well thus far in 2013, rising 29% to $53 during the past two months, and having split 2-for-1 at the end of May.

However, this month there were extensive and significant amounts of inside sales at Whole Foods. Sixteen different insiders cashed out millions of dollars’ worth of company stock during May, with some of that coming from the exercise of options. Most of the sales were direct and on the open market, ranging in pre-split prices from $90.50 to $105.19.

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When one or two insiders sell over a short period of time, it is not always significant. But when 16 company insiders are selling millions of dollars worth of stock on the open market, it is time for investors to take notice.

You can view the entire list of insider transactions for Whole Foods Market here[6].

Significant Buy Alert

However, not all company insiders were selling stock this month; at least one company was showing very significant insider transaction with large volume of shares purchased.

Walter Energy (WLT[7]) is a Birmingham, Ala.-based manufacturer of metallurgical coal for the steel industry, and utility companies throughout the U.S. and overseas. But unlike the two previously mentioned stocks, WLT has been a poor performer in 2013, falling from $40 in February to its current price of $16.64.

That hasn’t deterred 11 insiders — who obviously still favor their company’s prospects — from snapping up shares at bargain prices. The number of insiders and the large volume of shares bought would seem to indicate this is not simply a ploy to stop the price slide. Furthermore, other stocks in the coal sector, such as Natural Resources Partners LP (NRP[8]) and Consol Energy (CNX[9]), have also seen insider purchases this month.

Insider purchase prices of WLT ranged from $16.81 to $19 per share, and almost all were direct purchases made on the open market.

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We never want to buy a stock just because insiders have been making purchases, but in the case of WLT, the stock price has dropped significantly and now pays a 3% dividend. Additionally, anytime an investor can purchase stock at levels below recent prices paid by company insiders, consider that a bonus.

With the market so extended right now, perhaps it’s time to take a long look at some of these coal-sector stocks, especially those showing insider purchases.

As of this writing, Ethan Roberts did not hold a position in any of the aforementioned securities. His special report How to Profit From Insider Buying in 2013[11] — which includes 5 stock picks with significant insider buying activity right now, as well as tips on how to use insider trading to your advantage — can be purchased here[12].

Endnotes:

began May with a totally lopsided 91.2 ratio: http://www.sinletter.com/